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Carter: Address to Annual Fonterra Network Conference

David Carter

4 May, 2011

Address to Annual Fonterra Network Conference

The Christchurch earthquake – while a poignant reminder of the fragility of human life – also highlighted how well a small country like ours can rally around to respond to such a catastrophic event.

Fonterra was quickly at the forefront of this response, contributing much-needed drinking water, as well as a very substantial donation to the relief and recovery effort.

As a Cantabrian, I want to personally thank you for that.

All of you here can be proud of the achievements of Fonterra, a decade on from its formation.

It produces a high quality product, backed by integrity which commands a premium position in world markets.

This position is underpinned by strict environmental regulations, high food safety standards, and thorough animal welfare codes.

With record exports of close to 230-thousand tonnes of dairy product in March, adding to its already enormous contribution to New Zealand’s export profile, Fonterra encapsulates this Government’s vision for economic growth.

Gary Romano’s statistic last week of an export container door being closed every 2.6 minutes says it all.

This Government’s principle economic goal is to deliver greater prosperity, security and opportunity to all New Zealanders.

After nine years of neglect, we are single-mindedly focused on getting the economy back on track and rebalanced from the non-tradable sector and consumption, to the tradable sector, investment, savings and exports.

The economic growth that many New Zealanders thought we enjoyed in the last decade was, to be blunt, a myth.

The economy did grow, but it was in the unproductive areas that make up the non-tradable sector – government, retail and property speculation.

This imbalance must be reversed, and as a Government we are focused on doing just that.

Collectively we must generate economic growth and jobs in the tradable sector.

If we don’t bring about this transformation in the economy and get our internationally competitive sectors growing strongly, then the outlook is bleak.

New Zealand’s total foreign debt, as a percentage of GDP, is amongst the highest in the world; we have a structural budget deficit of over nine billion dollars, and we have been steadily slipping down the OECD rankings.

But change is underway.

The Government has embarked on a challenging economic agenda based around a six-point plan to boost growth and create high value jobs over the next three to five years. We are:

• Supporting better science, innovation and trade

• Removing red tape and unnecessary regulation

• Delivering better, smarter public services

• Investing in productive infrastructure

• Lifting education and skills, and

• Creating a growth-enhancing tax system.

But it is important to remember that the Government can’t generate economic growth by itself.

Simply, New Zealand needs businesses like Fonterra to export more, and gain stronger international connections.

Our economic prosperity is founded on thriving, profitable businesses.

The Government’s role is to create the conditions that encourage successful businesses to develop and grow – the challenge is then for our private sector to take advantage of those conditions.

We have made major new investments to stimulate business innovation, including $190 million over five years for business research and development, and a further $70 million each year for primary sector innovation through the Primary Growth Partnership.

Fonterra has, of course, already got on board with this initiative, with a contribution of around $85 million in conjunction with DairyNZ and others.

We have also concluded free-trade agreements with Malaysia, Hong Kong and ASEAN, and new agreements are under negotiation with India, the Gulf States, the Trans-Pacific Partnership, Korea and Russia.

So there is certainly reason for optimism in the years ahead.

Our commodity export prices remain at record levels, new markets such as China are going from strength to strength, and the rebuild of Christchurch with its associated billions of dollars of insurance payments will provide a clear boost to the regional and national economy.

However, we shouldn’t fool ourselves about the scale of challenges faced by New Zealand businesses seeking to grow, export and compete on the international stage.

Global competition is intensifying, market barriers remain entrenched, product standards and consumer expectations are increasing, and trading chains are becoming more complex and powerful.

New Zealand’s physical distance from markets is unique among developed countries and this presents a clear challenge to innovation and trade.

To be blunt, no other country in the OECD, and so dependent on exports to survive, has such a striking combination of small size and remoteness.

In addition, the dairy industry faces some unique challenges due to consumer pressure, here and overseas.

Consumers are increasingly expecting the sector to practise the highest standards of environmental management and animal welfare.

The Dairying and Clean Streams Accord results continue to come under attack from NGOs who see dairy as the biggest contributor to degrading water quality in New Zealand’s waterways.

And Fonterra’s sheer size has made it a soft target for a consumer backlash over price increases on a range of goods that reflect international price increases.

While progress on the Clean Streams Accord targets could be faster, the message is gradually getting through to those farmers who have struggled with effluent compliance.

Fonterra’s ‘Every Farm Every Year’ checks of effluent management, along with DairyNZ and local initiatives are having an impact.

For example, while it can’t be directly attributed to those initiatives, Environment Waikato reports that significant non-compliance has more than halved in the season-to-date, with just 11 percent of farmers in serious breach of regional planning rules.

There is now a good deal of education, training and technological innovation underway in the dairy sector, all aimed at maintaining productivity while reducing environmental impact.

This is important because fresh water is the greatest competitive advantage New Zealand has.

A huge amount of rain falls on our landmass, but as some Hawke’s Bay farmers will tell you it doesn't always fall in the right place at the right time. That means we must store it.

This, to me, is obvious, but water management is not only about storage. It's about efficient distribution, better allocation and better utilisation.

I have made no secret of the fact that I will drive hard to deliver better water outcomes.

Frankly I would be failing in my job if I didn't push the water agenda and deliver with it the security of long-term economic growth.

But there will not be progress unless we, the primary sectors, take people with us.

We must collaboratively engage with our communities.

I want to finish by talking briefly about the two big and current issues of dairy industry regulation – DIRA amendments to accompany Trading Among Farmers, and the review of Raw Milk Regulations.

I believe the TAF proposal has the potential to bring benefits both to your industry and to the wider economy. This is why, as Minister of Agriculture, I have committed to working with Fonterra to progress TAF.

I would like to take the opportunity to acknowledge here the positive and constructive relationship Government has had with Sir Henry and his team while working on this complex and difficult issue.

But there are two key conditions for TAF to meet to ensure the Government’s objective of freedom of farmer entry and exit from Fonterra is retained.

Efficient milk pricing and liquid markets for farmers’ shares.

The amendments to the DIRA to allow TAF cannot proceed until the Government is confident that these conditions will be met.

Government officials have been working hard on policy development following public consultation, with the full co-operation of Fonterra.

But issues have been raised which must be addressed.

I had earlier given an assurance to Sir Henry that I would do all I could to get the legislation done before the election.

But given the work that is still required, and the massive list of bills Parliament has to consider in the next few months, I have to say it is now looking very unlikely that legislation will be passed before the Election in November.

We may get the legislation introduced to Parliament, in which case a re-elected National Government would give it priority after the election.

A workable TAF remains a priority for Government. But it is in all our interests – you as farmers, Fonterra, as New Zealand’s largest company, and the Government on behalf of the entire economy – that we all get this right.

Finally, I have already announced that MAF officials have commenced a review of the Raw Milk Regulations. In other words, the rules of engagement for DIRA milk.

Many of you had expressed legitimate concerns about the regulations and the need for them to be reviewed.

I shared these concerns. The regulations need to be reviewed and updated, 10 years on from their inception.

The review is wide ranging, covering all aspects of the regulations including who is eligible to take regulated milk and for how long; what quantity of milk can be taken; and what level of flexibility in the rules of supply should be provided.

As policy development continues, there will be a robust consultation process, where all stakeholders will have the opportunity to express their views.

This feedback will help inform the Government's decision-making and I urge you to participate.

However, we need to acknowledge that the possible Commerce Commission inquiry into milk pricing could impact on the timing of both the review of Raw Milk Regulations and the changes to allow TAF. This is because the milk price is central to both of these pieces of work.

In conclusion, I do appreciate the chance to speak to you today.

While you work your farms, and your farming systems to create wealth for yourselves and for New Zealand, I work in the different and rarefied environment of Parliament and laws and regulation.

But let me assure you that my Government is fully aware that the success of your business drives the success of the New Zealand economy, and therefore the standard of living of all New Zealanders.

Thank you.


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